Skandia Insurance Company, Ltd.

1855–2002

Since its founding in 1855, Sweden's Skandia Insurance Company, Ltd. (Försäkringsaktiebolaget Skandia in Swedish) has grown from a small fire and life insurance company to that nation's top insurer and financial services group, operating in more than 20 countries worldwide. Skandia is headquartered in Sweden, but as of 2002, most of its business is conducted internationally. The company was among the seven firms listed on the Stockholm Stock Exchange when it opened in 1863, and in 2002 it is the only one of those original companies still listed there. While Skandia is still involved in the insurance business--selling and handling life, non-life, and pension insurances primarily--the company has shifted its main focus to financial services, offering loans, long-term personal savings products, mortgage loans, savings products for banking cardholders, financial and risk analyses, and new company development. As of 2000, Skandia leads the world in sales of unit-linked assurances, and the company achieves sales of SKr 198 billion (US$18.6 billion), a company record. These traditional measures of success are not the only by which Skandia measures itself: since 1994 the company has supplemented its annual reports with accountings of its "intellectual capital"--employee knowledge and expertise and other intangible assets--and is considered a pioneer in the movement to quantify such assets.

Early Days: 1850s-1890s

Skandia was established in 1855 as a mixed insurance company called Skandia Group Insurance Co. Ltd. by Carl Gustav von Koch when he acquired a series of small insurance companies throughout Sweden. In January 1855, Sweden's King Oscar I granted Skandia a concession to become the country's first life assurance company and nationwide fire insurance company. Its first offices were in a three-room apartment at Mynttorget 1 in Stockholm's Old Town, adjacent to the Royal Castle. Early company documents describe its business as "life assurance and fire insurance related therewith."

As European society became increasingly industrial, larger numbers of people became aware of a need for financial security for themselves and their families, sparking a wide interest in life insurance. Skandia benefited greatly from these new developments and the company expanded rapidly during those early years. Skandia was soon operating internationally with offices in Christiana (now known as Oslo), Copenhagen, Hamburg, and Rotterdam, and had significant operations in St. Petersburg, Russia. Skandia's stock shares began trading publicly for the first time on February 4, 1863, with the opening of the Stockholm Stock Exchange. By 1889 the company's life assurance business included 7,000 policyholders. Most of these policyholders were middle-class men; however, working-class people and women were showing a growing interest as well. The company introduced accident and disability insurance in 1890, and had expanded to 50 employees.

A New 20th Century

Skandia's robust expansion continued into the 20th century. In 1900 the company established operations in the United States and became the first non-British foreign insurance company to set up business there. At the dawn of the century, the company recognized that it could reduce the major risks involved with such disasters as the 19th century's great city fires by reinsuring fire premiums. As a result, most of the company's premium income was soon resulting from sales of fire insurance. Ironically, it was the U.S. expansion and the increased focus on fire insurance that caused the company to suffer one of the greatest losses in its history with the 1906 San Francisco earthquake and fires, which resulted in the loss of 3,000 lives and over 28,000 buildings.

American Skandia's business flourished, and by the year 2000 had more than US$36 billion in client assets.

1920–2002

The losses caused by the earthquake were offset by the benefits the company enjoyed as a result of the advances made in Sweden's social legislation at the hands of the monarchs Oscar II and Gustav V. Besides progressive laws concerning factory conditions, voting rights, and working hours for women and children, Sweden adopted a statutory social insurance scheme during this time. Occupational accident insurance and pension insurance became obligatory in the first decades of the 20th century. Skandia became a pioneer in motor insurance, writing its first policy in 1920, almost a full decade before third-party motor liability insurance and vehicle damage insurance were mandated by law. In 1938 the company introduced home insurance--an innovation which enabled policyholders to hold a single policy that covered fire, burglary, flooding and liability insurance, with one premium and one due date.

Modern Skandia: 1950s through 1980s

Sweden's neutrality during the two world wars buffered the company from some of the damages suffered by other European companies, particularly during World War II, and the company began the second half of the 20th century in much the same way it had spent the first half--with rapid expansion and growth. In 1953 it entered the South American market with a venture in Colombia, and in 1955 made its first foray in Asia with an operation in India. The 1950s also marked a technological advance for Skandia--in 1957 it used a computer for the first time--the IBM650 Magnetic Drum Calculator, which is now on display at Stockholm's Museum of Science and Technology.

Skandia experienced a "rebirth" in the 1960s. At the beginning of the decade, the company purchased life insurer Thule (which had been established by the grandfather of Olof Palme, Sweden's late prime minister). Skandia followed that purchase with the merger of five companies--which originally consisted of 53 small Swedish insurance companies--and the new Skandia group was introduced in 1964. The company simultaneously unveiled its umbrella logo, which remained the company symbol in 2002.

Skandia began the 1970s with more expansion, opening an office for international reinsurance in Australia. In 1971 the company renamed its subsidiary Thule Skandia Liv, creating a separate, but wholly owned mutual insurance company. Also in 1971, the company shut down its India operations when that country nationalized its insurance industry. Skandia introduced child insurance in 1974. This insurance provided compensation for disability or handicaps--regardless of cause--for children up to age 20. In 1979 the company established Skandia Life UK in London. This company was one of the first to sell unit-linked pension insurance (also known as variable annuity)--a form of insurance that lets the policyholder invest a portion of the premium in a variety of investment alternatives--in the United Kingdom.

Skandia's growth continued unabated during the 1980s. In 1986 the company acquired the share capital of Almendahl Investment Co. and Internationell Assurans AB. It also began a series of real estate acquisitions with 20 percent of the shares in Fastighetsbolagets Hufvudstaden and the majority of the shares in Fastighets AB Stockholm Badhus. In 1987, Skandia opened a member financial services company, American Skandia Life Assurance, in Shelton Connecticut. The new company implemented innovations that would be later adopted throughout the financial services field: it worked with external money managers to help it remain unbiased, and it sold its products wholesale to brokers rather than to a network of distributors. American Skandia's business flourished, and by the year 2000 had more than US$36 billion in client assets. Skandia acquired Skandia International and Vesta-gruppen A/S, Norway in 1988; and in 1989 it acquired National Insurance & Guarantee Corp., Spain's Skandia Comp de Adm Immobilaria, the Netherlands' Argo Properties, and Reinhold International Properties in London, the United Kingdom, in Madrid, Spain, and in Lisbon, Portugal. Also in 1989, the company's shares were listed on the Oslo Stock Exchange (Skandia would be delisted from that exchange in 1995). In 1990 the company once again benefited from governmental changes when Sweden adapted its insurance industry legislation, allowing Skandia to introduce unit-linked assurance in its home country. That year, the company's shares were listed on the London Stock Exchange.

1991–2000

Development of the Intellectual Capital Concept

By the early 1990s, Skandia was heavily invested in real estate, beginning with its acquisitions in the mid-1980s, and during that time the Swedish real estate market suffered a collapse. Between the liabilities of its insurance contracts and the devaluation of its land assets, on paper, Skandia appeared to many analysts to be in serious trouble. To the company, however, the future looked good: it still had tremendous assets in its people, its customers, and its products. "Within Skandia, processes that create value for customers, shareholders, and the staff are carried out on a daily basis. Many of these are.invisible," wrote CEO Bjorn Wolrath, "Nevertheless, they are innovative, and they create value." Skandia felt that the traditional ways of financial reporting did not allow the company to tell its full story. "We needed a way to explain that we had a lot more value than just real estate," remembered Scott Hawkins of American Skandia.

In the fall of 1991, Skandia hired Leif Edvinsson, who had an M.B.A. from the University of California at Berkeley and a background in banking, as its first--and, indeed, the corporate world's first--director of intellectual capital. Edvinsson and others at Skandia developed a means by which to measure a company's intangible value, or its Intellectual Capital (IC). Skandia defined IC as the sum of "human capital" such as employee competence, expertise, and knowledge, and "structural capital" (software, customer lists, trademarks, and so on). Edvinsson felt that the value of a company's intellectual assets far exceeded the value of tangible assets that normally appear on a balance sheet. By developing sophisticated tools to measure IC--such as its Dolphin Navigator and Skandia Intellectual Capital Index--Skandia was able to demonstrate how the company's knowledge could be converted into value.

In 1993, Skandia took the theory one step further and began supplementing its annual report--which reports on the company's traditional assets--with an IC report. This report quantified Skandia's IC, and made forecasts on how likely the company was to meet its strategic goals based on those quantifications. The theory proved highly successful: between 1993 and 1999, Skandia's share price quadrupled. Skandia was the first company to report on its IC in this manner, though many companies soon began emulating the approach. Edvinsson left the company in 1999, but Intellectual Capital remained a cornerstone of Skandia's corporate philosophy into the early years of the 21st century.

A New Focus for a New Millennium

Over the course of the 1990s, Skandia continued its tradition of expansion, and by the end of the decade had operations in more than 20 countries around the world, including Chile, the United Arab Emirates, China, and Poland. That decade also saw a major shift in the direction of the company. For 135 years, Skandia had focused on the insurance business; in the early 1990s, the company saw greater potential in the financial services industry and began to shift its core business in that direction. "The realization at the company was that growth comes from vigorously seeking out new market opportunities rather than calculating the market share of markets you're already in. So we transformed Skandia from an old insurance company into an innovative financial services organization," said Leif Edvinsson in 2000.

1990–2002

Skandia made this transformation through a series of sales and acquisitions over the course of the decade, and by growing its financial services business unit (Skandia AFS). Skandia AFS adopted a new business model, setting itself up as a wholesaler of financial services with a wide range of products based on external funds management. These products were then sold by a sales force of carefully selected and trained independent financial advisors.

The new model proved highly successful: in 1990, Skandia AFS accounted for only 12 percent of the company's total income. In 1996 it represented nearly 50 percent; a year later, that total was 70 percent, and Skandia was garnering praise in Europe and the United States for the strength of its products. The company became a global Fortune 500 company in 1997. Also in 1997, Lars-Eric Petersson took over the role of CEO from Bjorn Wolrath, and continued steering the company in the financial services direction. When the company's core profits doubled in the first quarter of 2000, he declared, "the restructuring of the Skandia group into a pure-play savings and assets management company is.complete." In 2001, Skandia sold SINSER Holding A.B. to Aon Corporation, shedding the last of its risk management consulting services and property/casualty insurance operations.

Despite its successes, Skandia was not immune from the economic troubles of the early 21st century. After a peak in the first half of 2000, the world's stock markets experienced sharply falling prices--and the United States (where Skandia had significant interests) was particularly hit hard. Skandia's sales in Sweden dropped 10 percent, its growth in new markets slowed, and its sales fell by 37 percent. CEO Petersson, while regarding the downturn as an economic "blip," rather than a reflection of company weakness, nevertheless responded with a series of cost-cutting measures that included a 13 percent reduction in its U.S. workforce and an aggressive reduction in operating expenses. The company also sold its asset management operations to Den Norske Bank in 2002. "The prolonged duration and severity of the market pullback, along with the difficulty in predicting the timing of its culmination have led us to these hard decisions," Wade Dokken, CEO of America Skandia said in 2001.

Even with these economic difficulties, Skandia had reason to be optimistic for its prospects in the new millennium. In the company's 2000 annual report and its third-quarter 2001 interim report, CEO Lars-Eric Petersson pointed to several factors that indicated a healthy future for the company: the overhaul of social security systems in many countries and changes in the labor market were resulting in the need for more individual savings. Additionally, Skandia had no liability claims resulting from the events of September 11, 2001--such claims had a significant impact on the insurance industry--and the company's global focus insulated it from the worst effects of the decline in the U.S. market. The company also quickly launched a number of new products in response to the new economic climate. "Our rapid-response business model is our strength in turbulent times," wrote Petersson in the company's September 2001 interim report. He continued, "The ongoing process of refining our business activities, product development, and distribution strength creates solid opportunities for the future."